Legislature(1995 - 1996)
05/03/1995 01:43 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 158 CIVIL LIABILITY
SENATOR TAYLOR announced he would take testimony on the six court
rule changes, requested by Senator Adams. He first took
teleconference testimony.
Number 521
DICK CATTENAUGH testified via teleconference from Anchorage. He
stated HB 158 is supported by many organizations statewide. He
discussed ways in which the current law hurts small businesses.
Punitive damages are not covered by insurance policies, and can
potentially destroy a firm and the individual owners of a firm.
This can cause small firms to settle rather than fight a case, to
minimize costs. In a case his firm was involved in, members did
not want to put their personal net worths in jeopardy to prove they
did no wrong.
Number 565
DANIELLA LOPER, staff to Representative Porter, sponsor of HB 158,
provided the highlights of HB 158.
HB 158 creates a more equitable distribution of the cost and risk
of injury and will reduce costs associated with the civil justice
system in that it will eliminate duplicate recoveries for injured
plaintiffs. It will establish thresholds for damage awards in
order to allow predictability of liability exposure. It will also
stabilize the rapidly escalating costs of health care associated
with civil liability. It will require one-half of punitive damages
awarded by a court be deposited to the general fund since punitive
damages were never established to compensate the injured plaintiff,
but rather to punish the wrongdoer. The Municipality of Anchorage
supports HB 158.
MS. LOPER gave the following sectional analysis.
Section 2 deals with the statute of repose which prevents a lawsuit
from being filed after eight years. Most states offer a statute of
repose between four and six years. Exclusions to the statute of
repose are as follows: product liability; hazardous substances;
defective products; intentional acts of gross negligence; fraud or
fraudulent misrepresentation; intentionally concealed acts; or
undiscovered presence of a foreign body that has no therapeutic or
diagnostic purpose.
Number 595
SENATOR TAYLOR commented he was contacted by a woman representing
300 breast implant recipients. They are very concerned about
potential health hazards resulting from those implants. He asked
MS. LOPER how she would respond to those concerns, since many of
those women received the implants more than eight years ago.
MS. LOPER assumed breast implants would be considered a defective
product. SENATOR TAYLOR noted the problems could also be caused by
medical malpractice.
TAPE 95-30, SIDE B
MS. LOPER believed the defective product exclusion under the
statute of repose would give that group an unlimited time in which
to file a lawsuit.
MS. LOPER explained Section 3 makes a technical change suggested by
the Division of Legal Services. Section 4 provides for two years
of accrual, the time from which an injury is discovered.
Number 586
SENATOR TAYLOR asked if that provision would apply to women who had
Dalkon Shields. MS. LOPER was unsure, but replied those products
would be considered defective products under the statute of repose,
therefore would be excluded. SENATOR GREEN clarified the person
would have two years from the time symptoms appeared and the
problem was discovered to file the suit, not two years from the
time the Dalkon Shield was inserted. SENATOR TAYLOR noted he had
a client who had a Dalkon Shield inserted ten years prior, and had
given birth to two children, and had six miscarriages. She had
been misdiagnosed for ten full years by 12 different physicians.
The problem was discovered after surgery.
MS. LOPER asked how the case turned out. SENATOR TAYLOR replied
she found a contingency attorney to represent her against some very
large insurance companies. MS. LOPER noted she was allowed to file
the claim, and HB 158 would not change that ability.
MS. LOPER explained Section 5 limits the non-economic cap on
damages to $500,000 unless there is disfigurement. In most states,
the limitations on non-economic damages range anywhere from
$250,000 to $400,000. HB 158 has a two-tier system: there is a
$300,000 cap on non-economic damages for pain and suffering, and if
the injury is substantially more serious (defined in the bill), the
cap would be $500,000 on non-economic damages. An amendment
adopted on the House floor allows each child and the spouse in a
family to file a claim for that amount.
SENATOR TAYLOR questioned page 5, line 11, which allows the
$500,000 amount for a person who has third degree burns over one-
half or more of his/her body. If the burns do not cover at least
one-half of a body, the limit would be $300,000. He noted he had
third degree burns over 35 percent of his body 25 years ago, which
was an extremely painful experience.
MS. LOPER stated Senator Taylor's experience was unfortunate,
however many quadriplegics and paraplegics support HB 158. She
stated there must be some predictability to the system, and that
non-economic damages should not be treated as a lottery ticket. A
jury does not have anything substantial upon which to base the
judgment, whether it is $300,000 or $500,000. In most cases in the
state of Alaska, it is rare for non-economic damage awards to be
above $200,000. She estimated in the past five years there have
probably been less than five awards of $500,000.
Number 508
SENATOR TAYLOR asked what the purpose of Section 5 is, in light of
that fact. MS. LOPER responded the purpose is to offer
predictability to the system. SENATOR TAYLOR questioned if the
five awards she referred to were a reaction to passion on the part
of the jury, rather than a meaningful decision. MS. LOPER stated
that unlike economic damages, where there is a paper trail, and
include economic, medical, and wage costs, there is
unpredictability.
SENATOR TAYLOR asked how Section 5 provides any certainty. MS.
LOPER replied that would occur by the limit of $500,000 for non-
economic damages. SENATOR TAYLOR ascertained the predictability
would be in the fact that the plaintiff would not get an award from
the jury commensurate with the damages the jury should award. He
asked if the five awards of $500,000 made by juries that went
"nuts" over the past five years is the unpredictability HB 158
attempts to curtail. MS. LOPER explained that any case that is
filed in which an injury occurred is open to the lottery ticket of
non-economic damages. SENATOR TAYLOR disagreed.
Number 475
MS. LOPER described Section 6, dealing with punitive damages.
Section 6 codifies punitive damages as defined by the Alaska
Supreme Court: outrageous conduct, including acts done with malice
or bad motives, or reckless indifference to the interest of another
person. SENATOR TAYLOR asked, if that was the same standard of law
to which Mr. Cattenaugh and his firm were to be held, so that when
he made his decision about whether or not the firm was at risk for
a punitive damage award, his attorneys would have advised him that
the Alaska Supreme Court has determined it was outrageous conduct,
including acts done with malice or bad motives, or reckless
indifference to the interest of another person. He stated Section
6 does not change anything for Mr. Cattenaugh's firm concerning
punitive damages. MS. LOPER stated that is correct, to the best of
her knowledge. She stated there is no cap on punitive damages, but
a formula is offered.
MS. LOPER explained the formula for punitive damages in Section 6
is three times the compensatory damages (the economic damages plus
non-economic damages), or $300,000, whichever is greater. SENATOR
TAYLOR asked if a person had $1,000,000 in economic damages and
$300,000 in non-economic damages, how much he/she could collect in
punitive damages. MS. LOPER calculated the punitive damages could
be $3.9 million. If the injured person was awarded no economic or
non-economic damages, the amount could be $300,000. She explained
of the $3.9 million punitive award, one-half would go to the state,
the other one-half would go to the injured party.
Number 439
SENATOR TAYLOR questioned the incentive for an injured party to
request punitive damages, if one-half is given to the state. He
asked if the state would pay for one-half of the attorney fees to
get the punitive damage award. MS. LOPER replied the state has
absolutely no standing, as stated in the bill, because punitive
damages were never established to compensate the injured party, but
to punish the wrongdoer. SENATOR TAYLOR asked who would pay for
the attorney. MS. LOPER answered the attorney would base the
contingency fee on the full amount before it is divided.
Number 428
SENATOR TAYLOR discussed the following scenario. If the punitive
damage award is $300,000 and the attorney takes the contingency fee
(50 percent) off of the full amount, the attorney would receive
$150,000. The injured party would then get $75,000, or one-half of
the remaining award. MS. LOPER agreed, and repeated the reason is
that punitive damages were not established to compensate the
injured party; they were established to punish the wrongdoer.
SENATOR TAYLOR stated under HB 158, the attorney would receive
twice as much as the victim. MS. LOPER agreed, and noted an
amendment on the House floor failed, but would have based the
attorney's contingency fee on a percentage of the injured party's
one-half portion.
Number 408
SENATOR TAYLOR asked how many punitive damage awards have been
awarded in the past five years in Alaska. MS. LOPER estimated the
number was under ten, because the state of Alaska has one of the
toughest standards for punitive damage awards.
SENATOR TAYLOR asked if the punitive damage provision in HB 158
would apply to a case similar to the Exxon Valdez case. MS. LOPER
replied that case was covered by federal law. SENATOR TAYLOR noted
the state also filed suit. MS. LOPER believed any state suits
filed would fall under the provisions of HB 158, if passed.
SENATOR TAYLOR commented if a tanker spilled oil around Southeast,
the damages would not be economic. MS. LOPER indicated economic
damages were awarded in the Exxon Valdez case. SENATOR TAYLOR
stated there were also punitive and non-economic damages, to cover
the loss of environmental things, such as the ambiance. MS. LOPER
noted, under maritime law, awards for non-economic damages cannot
be made. SENATOR TAYLOR clarified that under maritime law there is
a sailing to suitor's clause, which allows the injured party to
bring the suit to either state or federal court. If the case is
tried in state court, state laws apply, therefore, the injured
party would be allowed to sue for non-economic damages. Under
maritime law, there is a limitation on liability which is the value
of the ship.
MS. LOPER informed Senator Taylor that a bill passed the House in
Congress and is working its way through the Senate, that limits
non-economic damages to $250,000, and uses the same formula for
punitive damages.
SENATOR TAYLOR ascertained the state received $50 million from the
Exxon Valdez case, for "restitution." MS. LOPER stated those
punitive damages will be going to the injured parties, not to the
state. SENATOR TAYLOR noted a company owning a leaky oil tanker
would support the bill in Congress.
Number 359
MS. LOPER explained Section 8 clarifies the plaintiff is the only
party that can choose to take periodic payments. Security should
be posted, and self-insured municipalities would be excluded.
SENATOR TAYLOR asked for the definition of an "authorized insurer."
MS. LOPER assumed it would be an insurance company that could offer
enough money not to cause the court any problems for any kind of
security to be posted. SENATOR TAYLOR stated it means people who
are authorized to sell insurance in the state of Alaska. MS. LOPER
offered to obtain the statutory definition.
MS. LOPER discussed Section 9 which offers inflation adjustments
for periodic payments, so that the court will specify the
percentage or method for increases of future periodic payments to
cover inflation. She added it will prevent future litigation for
adjustment of the original award. SENATOR TAYLOR asked Ms. Loper
if she had any money invested between 1976 and 1980. He remarked
that had the best experts been hired in 1975 to determine an
inflation rate for an award, they would have been wrong. MS. LOPER
commented there was not even a provision in current law that
adjusted future payments by anticipated inflation, so this section
was added for the benefit of the injured plaintiff. She guessed
the plaintiff could request the periodic payment schedule be
amended if inflation rates changed radically.
MS. LOPER described the collateral benefits section (Section 10).
Most of the section is current law, except for the fact that
plaintiffs would not be able to recover duplicate amounts received
from collateral sources. It provides exceptions for certain
collateral sources that are subrogated to the claimant, and for
death benefits and worker compensation benefits. It allows a
person defending a defendant to introduce evidence of amounts
received from certain collateral sources and prohibits a person who
provides a collateral benefit that is introduced into evidence from
recovering that amount from the claimant or being subrogated the
rights of the claimant.
SENATOR TAYLOR asked how that would apply to a construction worker
who was badly injured on the job due to an improperly manufactured
DA cap. The worker begins to receive worker compensation payments
and brings suit against the third party for negligence. MS. LOPER
stated workers compensation benefits cannot be introduced as a
collateral benefit (lines 25-29, page 7). SENATOR TAYLOR noted
that is convenient for the insurance company defending because that
way the jury would not hear about how much money was paid by
workers compensation to keep the worker alive before the suit was
settled.
MS. LOPER noted it is similar to Civil Rule 411. If the workers
compensation benefit was $100,000, and the third party's damages
for negligence amounted to $200,000, the workers compensation award
could not be introduced as a collateral source. If the workers
compensation award was for $300,000, he/she would have to pay the
employer $100,000 for the workers compensation, and would keep
$200,000. SENATOR TAYLOR asserted the jury would not know the
worker owed the $100,000 bill that would have to be paid. He asked
what other sources the jury could be informed of. MS. LOPER
replied medical benefit payments could be disclosed. SENATOR
TAYLOR answered if a person is responsible enough to purchase an
insurance policy to cover his/her own injuries, even though the
other party was negligent, they could claim they did not owe the
claimant that amount. MS. LOPER gave the following example. An
employee is covered by health insurance by the employer, and is
involved in an accident (not job related) and breaks a leg. The
hospital bill is $50,000. Her medical insurance covers 80 percent
of the $50,000. The jury awards $100,000. Even though the medical
benefit was paid for by the insurance company, the employee would
pocket that money. SENATOR TAYLOR asked what kind of policy would
allow that since the carrier would sue for payment. Under state
health care coverage, if the state covers medical bills, the
injured party is required to sue the negligent party or the state
can terminate health care coverage. The state does not pay
attorney's fees for the law suit. Most insurance carriers have a
similar provision in their contracts.
SENATOR TAYLOR clarified under Section 10, the jury would be
informed that the injured party received $50,000 from the employer,
to prevent the injured party from receiving a judgement of
$100,000. MS. LOPER stated plaintiffs are overcompensated all of
the time; they are not repaying the insurance company. SENATOR
TAYLOR asked MS. LOPER if she had any evidence to cite. She stated
she did it herself. SENATOR TAYLOR noted if she was reimbursed for
$100,000, the negligent party would essentially get credit for the
$50,000 paid by the employer. MS. LOPER asserted collateral
benefits are not designed to punish the wrongdoer, that would be
paid under punitive damages. SENATOR TAYLOR remarked that if the
award was for $100,000, and the jury was informed the insurance
company paid $50,000 in medical bills, the difference would be
$50,000 paid to the injured party, and the wrongdoer would
essentially be rewarded by not having to pay the medical costs.
Number 076
MS. LOPER responded everyone bears the cost in the increase of
insurance rates. An injured party could punish a drunk driver
under punitive damages, collateral benefits were never designed to
offer duplicate recoveries to the injured party. SENATOR TAYLOR
believed the employer has the right to be reimbursed for the cost
of medical expenses paid by the employer, which will keep rates
down. MS. LOPER replied it basically sets up a no-fault state.
The intent of the section is to stop the overcompensation of
plaintiffs.
TAPE 95-31, SIDE A
SENATOR TAYLOR argued that punitive damages cannot be relied on,
since they are very rarely awarded, and one-half would have to be
paid to the state under HB 158. Also, punitive damages are not
covered by an insurance policy. He repeated that if Aetna paid
$50,000 in medical bills, and the injured party sues, Aetna would
be entitled to repayment. If the judgement was $100,000, Aetna
would be repaid $50,000, and the attorney's contingency fee of 30
percent would amount to $30,000. The remainder of $20,000 would go
to the injured party. SENATOR TAYLOR explained that under HB 158,
under the collateral rule, the amount of the award would be
$50,000, of which 30 percent would be paid to the attorney
($17,000) but $50,000 would still be owed to Aetna.
Number 295
SENATOR TAYLOR commented he did not understand why the sponsor
would want to deprive the insurance carrier who did no wrong, from
being able to seek subrogation and restitution. He noted this
provision would work well for a millionaire since one's own money
is not considered a collateral source. MS. LOPER said an indigent
person would collect the same amount as the millionaire.
SENATOR TAYLOR asked how the working class person would be affected
by the collateral source provision. MS. LOPER answered if the
person was insured, there would be no subrogation, and the person
would have to show that some compensation had been made, and that
the injured party did not pay the hospital bill out of pocket.
SENATOR TAYLOR repeated his concern that the collateral source
provision allows the "bad" guy to take credit for the "good" guys
coverage. MS. LOPER replied she views the situation from the
standpoint of returning the injured party to where they were prior
to the accident. From that perspective, she believes the
collateral benefits section in current law overcompensates the
injured party. SENATOR TAYLOR asked for data on the amounts of
overcompensation awards.
MS. LOPER explained Section 11. It deals with the apportionment of
fault by bringing in all parties responsible for the accident. It
does away with joint, civil liability. In Section 11 the phrase
"party to person" is removed and the clause, "or other person
responsible for the damages to each claimant regardless of whether
the other person, including the employer, is or could have been
named as a party to the action" is added. That would stop the
practice of going after the person with the deep pocket by naming
each person responsible for the accident as a party to the action,
including the employer. This section would reverse the Lake v
Construction decision.
Section 12 further delineates the apportionment of fault. MS.
LOPER stated when the injured party brings a claim to court, all
parties that have a percentage of fault must be named, instead of
just naming one that is insured for the largest amount. SENATOR
TAYLOR asked if this provision would result in multiple litigation
which would increase costs, as opposed to suing the two most liable
parties. MS. LOPER replied all people responsible for the act
would be sued. SENATOR TAYLOR stated the defendant has always had
the right to name and bring into the suit all parties involved. He
added if a person was hit by two cars and the accident resulted in
a pileup, the injured party would have to sue all cars involved,
and the state for poor road maintenance, rather than the two
drivers who were primarily responsible for the accident. He
questioned the increased amount of court time the provision would
create. MS. LOPER stated she believes it is fair and just to name
all those responsible for the accident, rather than allow those who
have no insurance to walk away from a case. SENATOR TAYLOR claimed
the defendant would bring in other responsible parties, rather than
taking sole responsibility.
MS. LOPER believed the issue to be a policy call and that Senator
Taylor is saying the defendant should take full responsibility,
even though he/she is only 10 percent at fault, but has the most
insurance coverage. SENATOR TAYLOR clarified that under current
law, a wealthy contractor who is being sued, but is only
responsible for 10 percent of the damages, would have his attorneys
bring the other defendants into court. He stated Section 12 forces
the injured victim to figure out who all of the actors were, down
to the smallest percentile of liability. MS. LOPER reiterated
Section 12 is designed to prevent the plaintiff from suing one
party only because that party has the most money.
MS. LOPER explained Section 13 allows either party to make an offer
to settle a claim up to 10 days before a trial begins. The offer
must be accepted within 10 days and recorded by the clerk of the
court.
Section 14 deals with prejudgment interest and changes the interest
rate from the fixed amount of 10.5 percent, to a floating rate,
three percent above the Federal Reserve District discount rate.
SENATOR TAYLOR asked if the prejudgment interest is determined on
the date the process is served, rather than the date of injury.
MIKE LESSMEIER, State Farm Insurance, clarified it would be
determined on the date of written notification by the claimant,
which could be the date of injury.
Section 15 disallows the payment of prejudgment interest for future
economic damages, future non-economic damages, or for punitive
damages.
MS. LOPER stated Section 16 makes a technical change to current law
and includes all of the provisions in HB 158 in the Uniform
Arbitration Act.
Section 17 requires medical expert witnesses to meet certain
standards. SENATOR TAYLOR asked if a general practitioner would be
unable to testify to previous malpractice by a specialist, since
that practitioner was not trained in that particular discipline.
MR. LESSMEIER noted the general practitioner would be allowed to
testify. SENATOR TAYLOR asked for evidence of cases in which the
court has allowed a doctor, not familiar with a specific
discipline, to testify on that discipline.
MS. LOPER stated Section 18 defines the terms "professional
negligence" and "professional services" as used in HB 158. She
noted at one time there was a specific statute of limitations and
repose for health care providers, but that section was eliminated
in the House Finance Committee. SENATOR TAYLOR added AS 09.55.560
contains a definition of health care providers by listing each.
MS. LOPER described Section 19 as providing clarification of
circumstances in which hospitals are held directly liable for the
actions of a health care provider not employed by the hospital.
Current law permits a claimant to sue only the hospital, rather
than the doctor as an independent contractor, who may have less
ability to pay. SENATOR TAYLOR asked if current law only permits
the claimant to sue the hospital. MS. LOPER replied under current
law the claimant can sue both the doctor and the hospital. She
added the state of Alaska does not require doctors to carry
insurance. SENATOR TAYLOR stated that resulted from the first tort
reform movement. Doctors complained they could not purchase
insurance at a reasonable rate, so MICA was created which doctors
had to join. The state was sued by doctors who were able to find
less expensive insurance, so they did not have to be covered under
MICA. Since that time, the state has not been able to require
doctors to have malpractice coverage.
SENATOR TAYLOR commented line 29 defines when a doctor is an
independent contractor. MS. LOPER noted the definition is on page
11, line 19. SENATOR TAYLOR believed the definition classifies an
independent contractor as a welcome trespasser. MS. LOPER noted
the definition is further defined by the list of "health care
providers" on line 14, and the hospital will always be liable for
the hiring of an independent contractor if it was negligent in its
hiring practices. Section 19 also requires the independent
contractor to give notice of limited liability, posted in all
admissions areas and in area newspapers annually.
TAPE 95-31, SIDE B
SENATOR TAYLOR asked what that notice will mean to a patient. MS.
LOPER replied the only control a hospital administrator has over a
physician is in the hiring process. SENATOR TAYLOR stated as a
hospital attorney, he got rid of five doctors, and had their
licenses pulled. He stated a good hospital board and administrator
will regularly engage in peer review and will not cover for
incompetent doctors. He noted if the hospital in Tampa, where
several tragedies have recently occurred, had hired those doctors
as independent contractors, the hospital would have no liability to
any of the victims. MS. LOPER replied the hospital would not be
liable if it believed the doctors were competent when they were
hired. SENATOR TAYLOR asked how the hospital board would know if
the doctor was incompetent until he/she did an incompetent act.
MS. LOPER believed the hospital board would investigate a doctor's
background, and added if the hospital was negligent in hiring a
doctor, it would be liable. SENATOR TAYLOR stated mistakes are
considered negligence, and if a good surgeon makes a mistake, the
hospital would not share the liability. He discussed the heart
surgeon in Portland, Oregon who made fatal errors in two heart
transplant operations in one year, and how a notice of limited
liability would be of little help to the families of those victims.
MS. LOPER stated Section 20 prevents a person from suing if the
accident occurred while in the act of committing a felony. SENATOR
TAYLOR stated this section resulted from testimony in the House
Finance Committee about several young men who were attempting to
paint numbers on the roof of a high school as a prank, and one of
the men fell through a skylight and was disabled for life. He was
awarded several hundred thousand dollars because the skylight was
painted black and was difficult to see. He asked if this provision
was originally written to include any crime. MS. LOPER replied the
crime must be a felony. SENATOR TAYLOR clarified the section has
been tightened since it now includes a person who attempts to
convict a felony and not only a person convicted of committing a
felony.
MS. LOPER explained Section 21 is fashioned after Civil Rule 11.
It is an attempt to stop frivolous lawsuits from being filed. If
there is a violation, monetary sanctions of up to $10,000 shall be
imposed. SENATOR TAYLOR questioned whether a similar provision
exists in the rules of court. MS. LOPER stated affirmatively, but
noted there are no monetary sanctions. SENATOR TAYLOR stated it is
his understanding there are no limits, either. He asked what the
purpose of placing this provision in statute is. MS. LOPER
repeated the court rule does not specify monetary sanctions against
the attorney. SENATOR TAYLOR stated this provision caps the amount
the attorney can be charged. MR. LESSMEIER commented Rule 37
allows sanctions. MS. LOPER added Section 21 provides one option,
a larger sanction could be obtained using Rule 37.
MS. LOPER stated Alaska Rule of Civil Procedure 95 was amended in
Section 21. SENATOR TAYLOR noted that instead of changing the Rule
which would require a two-thirds majority vote, the statute is
changed, which has the effect of changing the rule.
SENATOR TAYLOR asked Ms. Loper to provide the requested information
as soon as possible, and adjourned the meeting at 6:26 p.m.
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